KEY TAKEAWAYS:

• In affirming a trial court’s decision to deny defendant CDL Last Mile’s motion to compel arbitration, the Appellate Division of the Superior Court of New Jersey clarified several points about arbitration provisions in employment contracts

• To be enforceable in New Jersey, arbitration agreements in employment contracts must specifically state that the employee is waiving rights to court and a jury trial

• New Jersey law may apply to employment contracts even if there is a contrary Choice of Law provision in the contracts

On February 26, 2024, the Appellate Division of the Superior Court of New Jersey affirmed the trial court’s decision in Aguirre v. CDL Last Mile Solutions, denying defendant CDL Last Mile’s motion to compel arbitration.

The decision highlights what must be included in arbitration provisions in employment contracts for them to be enforceable in New Jersey. Specifically, such provisions must identify clearly and unambiguously the rights employees are waiving by signing the agreement – including the right to file claims in court and the right to a jury trial – and, at least in some circumstances, explain what arbitration is.

In addition, for non-New Jersey companies that employ New Jersey-based employees, the opinion provides guidance regarding when New Jersey law may still apply to arbitration agreements – even if the agreement includes a choice of law provision identifying another state.

New York Company, New Jersey Employees

CDL is headquartered in New York and operates a warehouse in Bergen County, New Jersey. The plaintiffs, New Jersey residents who worked as delivery drivers for CDL exclusively in New Jersey, alleged they were misclassified as independent contractors and, as a result, improperly paid. The identical contract between CDL and each plaintiff contained an arbitration clause stating that all claims will be settled by binding arbitration under the Federal Arbitration Act and New York’s Arbitration Provisions. The agreements also state that they were governed by the laws of the State of New York.

In affirming the trial court’s rulings, the Appellate Division began by addressing the enforceability of the choice-of-law provision. The Appellate Division first concluded that New Jersey and New York law conflicted with respect to the enforceability of arbitration agreements. Accordingly, because, as the Appellate Division found, New Jersey has a materially greater interest regarding the disputes than New York (as New York has little connection to the matter beyond the defendants’ residence there, while the plaintiffs live and work in New Jersey and the claims implicate New Jersey’s Wage and Hour Law and Wage Payment Law), and New York law would be contrary to fundamental New Jersey policy that the waiver of the right to a trial and jury must be knowing, intelligent and voluntary (which is not required under New York law), New Jersey law applied despite the New York choice of law provision in the agreements.

Arbitration Provisions Language

The Appellate Division then analyzed the specific language of the arbitration provisions in the agreements, finding the provisions deficient. Specifically, to be enforceable under New Jersey law, mutual assent of the parties is necessary and an arbitration agreement must clearly state that the parties are agreeing to arbitrate and are giving up the right to pursue a claim in court. Any arbitration agreement that fails to “clearly and unambiguously signal” to parties that they are surrendering their right to pursue a judicial remedy and jury trial makes the agreement unenforceable. As the agreements failed to include a clear and unambiguous explanation of rights waived and did not explain what arbitration is or that by agreeing to it the plaintiffs would be giving up the right to litigate their claims in court, they were void under New Jersey law.

Explaining “Arbitration”

The Appellate Division found the sophistication of the plaintiffs important, noting that the average consumer or delivery driver is not likely to understand what arbitration is and how it differs from litigation in court with a judge and jury without further explanation, which the agreements do not include.